As internet technology and online banking services improve over time, people have started to see the potential in online banking. To fill this demand, tons of online banks had begun to pop up in recent years. Most internet banks offer high-yield savings account with a competitive APY, perfect for building an emergency fund. 

With the improvements in technology, making a bank transaction at home is becoming the norm. Online banks are also becoming a popular option for people with saving goals. Due to their high-yield options and convenient services, many Americans use online banks for building their emergency funds.

According to Market Watch, there are almost 25% of Americans that have no emergency savings fund. Amid the economic upheaval, the importance of having emergency money is indispensable.

If you’re of that 25%, you can start building your fund conveniently with the help of the following online banks below.

But first, let us learn more about emergency funds and their uses.

What is an emergency fund?

An emergency fund is money set aside for usage during difficult financial situations. This fund serves as a financial cushion when unexpected financial distress occurs.

It is often separated from other funds (like retirement, main account, etc.) to avoid untimely withdrawal. This fund often uses cash or any other assets with high liquidity.

The recommended emergency fund amount is at least six month’s worth of expenses. Since the average unemployment period is about six months, your emergency fund should be able to fund your expenses for at least six months.

Investopedia recommends building an emergency fund before making volatile investments like stocks.

What qualifies as an emergency

Before spending your emergency fund, you should consider if you’re really in an “emergency” situation. Some examples of “emergency” situations are:

  • Job loss
  • Unexpected medical expenses
  • Car accidents
  • Major appliance/electrical malfunction
  • Unplanned work time-off

Your definition of “emergency” might vary, but these conditions mentioned above often apply to everyone.

High yield and ease of withdrawal are the most important factors to consider when choosing an account to house your emergency savings. Most people choose a savings account from traditional banking institutions.

Are online banks good for emergency funds?

online banks

In its simplest definition, an online bank is a financial institution offering traditional banking services without any brick-and-mortal location. It is a bank without the typical “banking” experience. Online banks don’t have a physical location, no person-to-person transaction, and no long lines of waiting customers.

Due to this setup, online banks can offer a more competitive APY without any regular maintenance fees.

Traditional banks need to charge these fees to keep the light on at their physical location. Additionally, all the transactions are done online. Depositors don’t need to wait in line to deposit or withdraw their funds.

How to choose an online bank?

Choosing your online bank needs quite a lot of consideration. A high APY is not the only important factor.

Many people changed banks due to poor user experience in the mobile app, no ATM availability, and more. It’s better to weigh in all the options available and pick the best one that will work for your financial needs.

1. Banking fees

Banking fees do not only refer to the usual monthly maintenance fees that traditional banks charge. It also applies to ATM fees from out-of-network withdrawals, overdraft fees, and other fees. Withdrawal fees are not a problem for emergency funds. Instead, you might have to pay the bank for keeping your money (maintenance fee.)

2. Deposit and minimum balance requirement

Emergency funds are usually built bit by bit and not deposited in a one-time big-time manner. Hence, some users like to avoid banks with high minimum balance requirements. Most online banks don’t require both deposit and balance requirements to offer earnings based on APY.

3. ATM availability

What makes an emergency fund a godsend is its high liquidity characteristics. These accounts are available when you need them. And that is only available if the account comes with ATM availability. Don’t forget to check about out-of-network fees, too, if you’re looking for affordable ATM usage. Some accounts offer ATM cards automatically, but some banks only issue the card per request.

4. Annual Percentage Yield (APY)

The annual percentage yield or the APY is the payout rate you can expect when depositing your money to a bank. The higher the rate, the better; it means that you’re earning more money without doing anything for it. Newly established online banks tend to offer high APY rates to attract depositors.

5. Insurance and safety

Make sure that there your account is FDIC-insured to keep your deposits safe. In case of financial distress or bankruptcy, depositors of FDIC-insured banks will still get their money. FDIC provides insurance for up to $250,000 per depositor.

6. Mobile app

And lastly, since you’re doing most or all of the transactions online, you should also consider your experience using the bank’s services. Not all mobile apps are created equal: some banking apps only offer basic services, while others even have investment tools. Don’t forget to add customer service to the factors as well.

The 6 best online banks for your emergency fund

Discover Bank

One of the best online banks right now is Discover Bank. It offers both savings and checking accounts with no fees and no deposit requirement.

The APY is also very competitive at 0.40%, with the chance to upgrade to 0.50 APY for long-term deposits.

What makes Discover Bank a great choice is its one-for-all mobile app. You can pay your bills, deposit your checks, and manage your savings account using only one app.

Unfortunately, no ATM card support is available for a savings account. ATM is only available via the checking account.

Minimum Required: No minimum balance required

APY: 0.40% APY

ATM Availability: None

Monthly Fees: None

Mobile App: Yes

Ally Bank

Ally Bank offers a very competitive APY at 0.50%, with no minimum deposit and monthly fees. It also provides a wide variety of financial products like loans.

Additionally, the bank supports Zelle transactions, so you can send money to your loved ones if needed. However, this bank doesn’t support ATM cards. You will need to use the Allpoint Network to withdraw money via ATM.

The best feature of this bank is its high-rated app. Even non-tech savvy people can use the mobile app with ease. You can also use it to find an Allpoint Network ATM near you if you need your fund. Check deposits are also supported via this method.

Minimum Required: No minimum balance required

APY: 0.50% APY

ATM Availability: None, but you can access your account via Allpoint Network

Monthly Fees: None

Mobile App: Yes

Axos Bank

If you’re a frequent user of both savings and checking accounts, you might want to consider making an account at Axos Bank. Its checking account program supports CashBack Checking, with a monthly cap of $2,000 cashback per month.

Both savings and checking accounts don’t have maintenance fees and minimum balance requirements. But you need to deposit $250 for a high-yield savings account.

The high-yield account gives the depositor up to 1.25% APY and can request an ATM card issuance. Before opening this type of account, do note that there are no tiered rates. You will get the same APY as everyone else, regardless of the deposit amount.

Minimum Required: $250 for the high yield savings account

APY: up to 1.25% APY

ATM Availability: Yes

Monthly Fees: None

Mobile App: Yes

Varo Bank

Varo Bank offers one of the highest APY rates in the country.

With 2.80% APY, it is almost four times higher (or more) than the traditional banks. However, this APY is only applicable if you reached the requirements (make five purchases via Varo Bank Debit Card, and a total direct deposit of $1,000.) Your account should also not exceed $10,000.

Like its competitors, Varo Bank doesn’t have minimum deposit requirements and monthly fees. Depositors can also use free automated tools for easier saving setup.

Minimum Required: No minimum required

APY: up to 2.8% APY (need to reach the bank’s requirement)

ATM Availability: None, you need to use Allpoint Network.

Monthly Fees: None

Mobile App: Yes

Charles Schwab

Charles Schwab doesn’t offer the best APY in the world, with only 0.05% APY under its name. However, its hook is flexible ATM usage. Unlike other banks, you can use ATMs worldwide, and without any limit. You can also receive ATM fee rebates, which is a handy feature for frequent travelers.

Its mobile app is also rich with bank functionalities and is available for both iOS and Android.

Minimum Required: No minimum required

APY: 0.05% APY

ATM Availability: Yes

Monthly Fees: None

Mobile App: Yes


Like other options in the list, the CapitalOne savings account doesn’t have monthly maintenance fees, no minimum deposit, and no minimum balance requirement. Its 360 performance savings account offers a competitive 0.40% APY. The offering comes with a mobile check deposit option.

You can use savings products to open an account for your children, but it has a lower APY of 0.30%. Unfortunately, the savings account doesn’t have ATM capabilities.

Minimum Required: No minimum required

APY: 0.40% APY

ATM Availability: None

Monthly Fees: None

Mobile App: Yes

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